John C. Williams, president of the Federal Reserve Bank of New York, stated on Friday that the Fed is near or at the peak level of the target range for the federal funds rate, though he anticipates maintaining a restrictive monetary policy stance for some time. This stance is intended to restore balance to demand and supply and bring inflation back to the Fed's 2% longer-run goal.
Williams' speech, published by the New York Fed due to an urgent family matter preventing him from delivering it in person, indicated that while monetary policy actions are having the intended effects, they will need more time to fully impact the economy and inflation. He expects GDP growth to slow to about 1.25% next year with unemployment rising slightly over 4%.
The New York Fed chief pointed out that although inflation has reduced from its peak last year, it remains too high. He emphasized the necessity of further restoring price stability. He also mentioned progress in combating inflation, citing a significant slowdown in rising goods costs as supply-chain bottlenecks are resolved.
Williams highlighted the challenge of ensuring the cost of shelter and labor continue to ease, as rising home prices, rents, and wages are largely driving recent inflation increases. However, he noted some easing in shelter costs and a cooling labor market.
Inflation is expected to slow from ~3.25% by the end of 2023 to ~2.5% next year, eventually nearing the Fed's goal of 2% in 2025, according to Williams' projections.
The Fed maintained its benchmark short-term interest rate at a range of 5.25% to 5.5% last week, leaving open the possibility for another rate hike before year-end if inflation doesn't further slow toward its 2% target. However, not all officials agree with another increase with twelve of the Fed’s 19 governors and regional bank presidents predicting one more hike, but seven expecting rates to stay at the current level.
In a surprise to Wall Street, senior Fed officials also predicted just two rate cuts next year instead of the four they had previously anticipated in June. This forecast underscores their strategy of maintaining "higher rates for longer."
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